Facebook Mobile Reader: No Salvation for Shareholders

Facebook (FB[1]) is working on a mobile news reader — likely for Apple’s (AAPL[2]) iPad — that would go head-to-head with the highly popular app Flipboard, according to Wall Street Journal reports[3].

On its face, it’s hard not to like this move — a reader product would very likely mean more engagement and allow for more opportunities to serve up flash ads.

But don’t get too excited, Wall Street.

Facebook has been a dog this year, returning a dismal 11.4% to-date vs. a broader market that’s still in the black by double digits. Even a recent bullish upgrade[4] from analysts at UBS (UBS[5]) — including a rating improvement from “neutral” to “buy” and a price target uptick from $28 to $30 — hasn’t done anything to lift the stock.

As I noted in a recent post in InvestorPlace[6], a big problem is that Facebook has lost some of its product mojo. Consider that the company has launched a string of duds like Poke, Home for Android, Camera, Gifts and Graph Search.

Even the recent video add-on for Instagram — available for both Apple’s (AAPL[2]) iOS and Google’s (GOOG[7]) Android — feels more like a defensive move against Twitter’s highly popular Vine service. Yes, having 15 seconds (vs. Vine’s six) is tailor-made for ad opportunities[8], but short videos with filters isn’t a ground-breaking technology brought fresh to you by Facebook.

And the product drought might not be the only problem that’s nagging Facebook.

Let’s go back to the mobile news reader.

According to the WSJ, the project has been in development for more than a year. In the high-speed tech world, one year is an eternity. The so-called “first mover advantage” is critical. When it comes to consumer apps, it does not take long for a leader to emerge, and when this happens, it can be extremely tough to unseat it (which is why Facebook shelled out big bucks for Instagram).

“Moving fast enables us to build more things and learn faster. However, as most companies grow, they slow down too much because they’re more afraid of making mistakes than they are of losing opportunities by moving too slowly. We have a saying: ‘Move fast and break things.’ The idea is that if you never break anything, you’re probably not moving fast enough.”

Now, Facebook is moving slow. But I guess at least it’s still breaking things.

One way in which FB is moving fast is its headcount. The company has gone from 3,500 employees to almost 5,000 in just a year.

Should the company rethink its organization and get rid of some of those people? Well, if you look back at the history of great tech operators, such as Yahoo (YHOO[9]), AOL (AOL[10]) or eBay (EBAY[11]), they have all had problems scaling growth (and Apple almost went bust). The organizations got too bloated and the results suffered. Startups capitalized on things and accelerated the erosion.

Right now, the same could be happening with Facebook — and that should worry shareholders.

Tom Taulli runs the InvestorPlace blog IPO Playbook[12]. He is also the author of High-Profit IPO Strategies[13], All About Commodities[14] and All About Short Selling[15]. Follow him on Twitter at @ttaulli[16]. As of this writing, he did not hold a position in any of the aforementioned securities.